CHAPTER 2 Job Order Costing ASSIGNMENT CLASSIFICATION TABLE Brief Exer Ex erci cises ses
Exerc Exe rcis ises es
A Problems
B Problems
Study Objectives
Questions
1.
Expl Explai ain n the the char charac acte teri rist stic ics s and purposes of cost accounting.
1, 2, 3, 4
2.
Describe th the flflow of of costs in a job order costing system.
5, 6, 7, 8, 11, 12
1, 2, 3, 4
1, 2, 3, 4, 6, 7, 8, 9,11
1A, 2A, 3A, 5A
1B, 2B, 3B, 5B
3.
Explain the nature and importance of a job cost sheet.
9, 10, 11, 12
5
1, 2, 3, 6, 7, 8, 10, 12
1A, 2A, 3A, 5A
1B, 2B, 3B, 5B
4.
Indicate how the predetermined overhead rate is determined and used.
13, 14, 15
6, 7
2, 3, 5, 6, 7, 8, 11,12, 13
1A, 2A, 3A, 4A, 5A
1B, 2B, 3B, 4B, 5B
5.
Prepa epare entr ntries ies fo for jo jobs completed and sold.
16
8
2, 3, 4, 6, 7, 8, 9, 10, 11
1A, 2A, 3A, 5A
1B, 2B, 3B, 5B
6.
Disti istin nguish ish betw etween een under- and overapplied manufacturing overhead.
17, 18
9
5, 12, 13
1A, 2A, 4A, 5A
1B, 2B, 4B, 5B
2-1
ASSIGNMENT CHARACTERISTICS TABLE Problem Numbe Numberr
Descri Descript ptio ion n
Difficulty Level
Time Allotted (min.)
Simple
30–40
1A
Prepare entries in a job cost system and job cost sheets.
2A
Prep Prepar are e ent entri ries es in a job job cost cost syst system em and and par parti tial al inco income me statement.
Moderate
30–40
3A
Prep Prepar are e ent entri ries es in a job job cost cost syst system em and and cos costt of of goo goods ds manufactured schedule.
Simple
30–40
4A
Comp Comput ute e pred predet eter erm mined ined over overhe head ad rate rates, s, appl apply y over overhe head ad,, and calculate under- or overapplied overhead.
Simple
20–30
5A
Anal Analyz yze e man manuf ufac actu turi ring ng acco accoun unts ts and and det deter ermi mine ne miss missin ing g amounts.
Complex
30–40
1B
Prepare entries in a job cost system and job cost sheets.
Simple
30–40
2B
Prep Prepar are e ent entri ries es in a job job cost cost syst system em and and par parti tial al inco income me statement.
Moderate
30–40
3B
Prep Prepar are e ent entri ries es in a job job cost cost syst system em and and cos costt of of goo goods ds manufactured schedule.
Simple
30–40
4B
Comp Comput ute e pred predet eter ermi mine ned d over overhe head ad rate rates, s, appl apply y over overhe head ad,, and calculate under- or overapplied overhead.
Simple
20–30
5B
Anal Analyz yze e man manuf ufac actu turi ring ng acco accoun unts ts and and det deter ermi mine ne miss missin ing g amounts.
Complex
30–40
2-2
ANSWERS TO QUIZ True/False
1. 2. 3. 4. 5.
True False True True True
6. 7. 8. 9. 10.
True False False True True
Multiple Choice
1. 2. 3. 4. 5.
c. b. c. d. a.
2-16
ILLUSTRATION 2-1 COST ACCOUNTING SYSTEMS
Product Costs
1. Measuring 2. Recording 3. Reporting
Job Order Cost System
Process Cost System
1. Each job has its own distinguishing characteristics.
1. Similar products continuously produced. 2. Accumulates product costs by department for a period of time.
2. Measures and accumulates costs for each job.
Total Cost Unit Cost
2-17
ILLUSTRATION 2-2 JOB ORDER COST SYSTEM
8
y r l d o o t f s n o s e t d v s n o o I g s C o d o e o f d t e G o l t d s s p e b o m h o o s C c j i ) n i ( F 7
d e z i n g o c e d r e e t s s i r d n d u a e e e s i e s d l u l m r d p s a s p o o n i g s s o i a l r s g d s a o i d o t s i b d o A r e e a d e l g n t t a z u i f a y e l e n o o h m r p g c r o t c t o e m s w a c c a a v o e o l r R F O C C . 5 . 6 . 7 . 8 . o r 4 t
*
d l o S s d o o d G l f f s o o o s t t d s s o o o C C o g ) 8 (
7 y r m s o o b t c n o f j e o d v n t s e I t e o l s s C p e c d o s e d r a l e d a t s P t i u h r e c c r n r i e i e l d e e t o r r p e v a i b k s p r i a D m u D l O a o ) ) ) 5 ( ( 6 ( W 4 *
s t s o C f o w o l F
4
y r s o l t a i n r e e v t d n I a e s s M u l a s i r e s e t a a h M c r u w P a ) R 1 ( *
r o b a L y r o t c a F
: s e i r t n E o t y e K
5 r o b a l y r o d t c e a F s u d y r r e r o r t u o c c b a a i n F l ) 2 (
2-18
s l a i n r g o e r i n i t t o r a a b l a u t u m l c a y w m f r a u u r o c n t c e a d c a s a e A a f m h h r r r c u u e r c c v u n n o P I I . . . 1 2 3
n o c r e g d e l l a r e n e g a s e t a c i d n I *
6 * d d a a e e d h h r e r i e l v e v p O O p a g n - d d i e e s r e r l r c s t t u s a e r n i u t c c r n v e u a i r c e e r r c o r o a e r r a i d i i p t f n u o l t p i e a e i s d d a a b u e s n R I n m u I n l a d D c I n t a u ) ) ) c a e 4 5 M A h 3 ( ( (
ILLUSTRATION 2-3 ACCUMULATING MANUFACTURING COST ENTRIES 1. Raw Materials Inventory Accounts Payable (Purchase of raw materials on account)
25,000 25,000
2. Factory Labor Factory Wages Payable Payroll Taxes Payable (To record factory labor costs)
50,000 46,000 4,000
3. Manufacturing Overhead Accounts Payable, Accumulated Depreciation, and Prepaid Insurance (To record overhead costs)
2-19
20,000 20,000
ILLUSTRATION 2-4 ASSIGNING MANUFACTURING COST TO WORK IN PROCESS ENTRIES 4. Work in Process Inventory Manufacturing Overhead Raw Materials Inventory (To assign materials to jobs and overhead)
18,000 2,000 20,000
5. Work in Process Inventory Manufacturing Overhead Factory Labor (To assign labor to jobs and overhead)
42,000 8,000 50,000
6. Work in Process Inventory Manufacturing Overhead (To assign overhead to jobs)
21,000 21,000
Predetermined Overhead Rate
Estimated Annual Overhead Costs $100,000
÷
Expected Annual Operating Activity Labor Cost $200,000
2-20
=
Predetermined Overhead Rate 50% of Labor Cost
ILLUSTRATION 2-5 ASSIGNING COSTS TO FINISHED GOODS AND COST OF GOODS SOLD ENTRIES 7. Finished Goods Inventory Work in Process Inventory (To record completion of job)
75,000 75,000
8. Accounts Receivable Sales (To record sale of job)
150,000
Cost of Goods Sold Finished Goods Inventory (To record cost of sale)
75,000
150,000
75,000
2-21
ILLUSTRATION 2-6 JOB ORDER COST SYSTEM 8 y 0 r 0 o 0 , d t l 5 n o 7 e S v s n I d s o d o o G 0 o 0 f G 0 0 o 0 0 , , t 5 d 5 s e 7 o 7 h s i C n ) ) i 8 F 7 ( ( 7
s t s o C f o w o l F
: s e i r t n E o t y e K
y r 0 0 o t 0 , n 5 e 7 v n I s s e c 0 0 0 0 o 0 0 0 0 r 0 0 0 P 0 , , , , 8 2 1 n i 1 4 2 6 k r . o ) ) ) l a ( 5 ( 6 ( B W 4 4 0 y 0 r 0 , o t 0 n 2 e v n I s l a i 0 0 r 0 0 e t 0 , 0 , a 5 5 M 2 w . a ) l a R 1 ( B
5 0 0 0 , 0 r 5
o b a L y r o t c a F
0 0 0 , 0 5 ) 2 (
2-22
d e e s s i r d d u e a s e s d l e l u i t o r d p s a i s n o p e l s s r a o d g a m s d o o i i n r b d d o g e e a d e e i g l t t a z z s i i f a e e l s m y n o r h p g t n g A o r o o t e m s w v o c o c a c a e e r r R F O C C . . . . . 4 5 6 7 8 s l a i r g e r n t i n o a r o u i m b a t t l c a l a y f u w r a u r o m n t e a d c u s a a c f a e c h r m h r r A c u u r e c c u v n n P I I o . . . 1 2 3
6 0 d 0 a d 0 e , a 1 e h d r h e 2 r e i l v e v p p O O a g n d 0 0 0 0 i r - e 0 0 0 0 r u r 0 0 0 0 , , , , t e r 9 c v 0 2 8 u a o c 2 f n l i u a d . n l a u t a a ) ) c e ) M A * h 3 ( 4 ( 5 ( B
d e i l p p a r e d n U *
ILLUSTRATION 2-7 FLOW OF DOCUMENTS—JOB COST SYSTEM
- s - e b m m h d o t o u e . j s f c f h e t e . r i t o d s l o o d e a n a t e n s i o f i s n h d t r d i e s o e o e c n t t a t e p a e s w l e d h d g a o t p h e c t e n t i r t m r o a t t b s e o n e l e o s j i u c f z p d s e d o s r t e a m e c b n o a h l o c r o T m c p a J t o g
t s t o e e C h b S o J
s p i l s S l a n i r o i e t i t s a i M u q e R
e m s i t T k e r c o i b T a L
2-23
e d t e a n i R m d r a e e t h e r d e e v r P O
ILLUSTRATION 2-8 UNDER-AND OVERAPPLIED MANUFACTURING OVERHEAD
MANUFACTURING OVERHEAD Actual Costs
Applied Costs
Debit Balance — underapplied
Credit Balance — overapplied
2-24
2. Companies recognize cost of goods sold when each sale occurs. Each sale requires an entry debiting Cash or Accounts Receivable and crediting Sales for the selling price and a second entry debiting Cost of Goods Sold and crediting Finished Goods Inventory for the cost of the goods.
TEACHING TIP
ILLUSTRATION 2-5 provides an example of the journal entries required to assign
manufacturing costs to finished goods and to record a sale and the cost of completed units sold. E.
Job Order Cost Flows and Reporting Job Cost Data.
1. A job order cost accounting system may be illustrated in a flow chart.
TEACHING TIP
ILLUSTRATION 2-6 provides a flow chart of the cost flows through the general
ledger accounts for the examples used in Illustrations 2-3, 2-4, and 2-5. 2. Entries in the job cost system also provide a summary of the inventory control accounts and source documents for assigning costs to jobs.
TEACHING TIP
ILLUSTRATION 2-7 identifies the major source documents used to make entries in
a job order cost system. 3. The cost of goods manufactured schedule is the same as for companies that do not use job order costing with one exception: manufacturing overhead applied, rather than actual overhead costs, is added to direct materials and direct labor to determine total manufacturing costs.
2-12
F.
Under- or Overapplied Manufacturing Overhead.
1. Underapplied overhead means that the overhead assigned to work in process is less than the overhead incurred (when Manufacturing Overhead has a debit balance). 2. Overapplied overhead means that the overhead assigned to work in process is greater than the overhead incurred (when Manufacturing Overhead has a credit balance).
TEACHING TIP
ILLUSTRATION 2-8 contrasts actual Manufacturing Overhead with applied
overhead and indicates whether overhead is under- or overapplied. 3. At the end of the year, the company eliminates any balance in Manufacturing Overhead by an adjusting entry. Under- or overapplied overhead is considered to be an adjustment to cost of goods sold. 4. The company debits underapplied overhead to cost of goods sold and it credits overapplied overhead to cost of goods sold.
2-13
20 MINUTE QUIZ Circle the correct answer. True/False 1.
Under a job order system, the company assigns costs to each job, or each batch of goods, to fill a specific customer order or replenish inventory. True
2.
Manufacturing costs incurred in a job order system are accumulated by debits to Purchases, Factory Labor, and Manufacturing Overhead. True
3.
False
In preparing the costs of goods manufactured schedule in job order costing, manufacturing costs include direct materials used, direct labor used, and manufacturing overhead applied. True
10.
False
A debit balance in the Manufacturing Overhead Account at the end of the period indicates that overhead has been overapplied. True
9.
False
The entry to record the cost of goods sold includes a debit to Finished Goods Inventory. True
8.
False
Actual overhead costs are debited to the Manufacturing Overhead account. True
7.
False
The requisition of factory supplies to production requires a debit to the Manufacturing Overhead account. True
6.
False
Manufacturing overhead costs cannot be traced directly to a specific job. True
5.
False
Each debit to Work in Process Inventory must be accompanied by a corresponding posting to one or more job cost sheets. True
4.
False
False
A job cost sheet is a form used to record the costs chargeable to a specific job and to determine the total and unit cost of the completed job. True
False 2-14
Multiple Choice
1.
A job order cost sheet includes a. the selling price of the job. b. a total when a job is completed and transferred to cost of goods sold. c. all manufacturing costs for a job. d. all manufacturing overhead costs for the period.
2.
In a job order cost system the following accounts are used as a control account except a. Raw Materials Inventory. b. Factory Labor. c. Manufacturing Overhead. d. all of the above.
3.
In a job order cost system, debits to Work in Process Inventory originate from all of the following except a. applying the predetermined overhead rate. b. assigning direct labor from time tickets. c. assigning actual manufacturing overhead costs to jobs. d. assigning direct materials from requisition slips.
4.
The predetermined overhead rate is computed by dividing estimated a. level of activity by estimated overhead costs. b. level of activity by expected overhead costs. c. overhead costs by estimated cost of jobs. d. overhead costs by expected activity base.
5.
If annual overhead costs are expected to be $1,000,000 and 200,000 total labor hours are anticipated (80% direct, 20% indirect), the overhead rate based on direct labor hours is a. $6.25. b. $5.00. c. $25.00. d. $4.00.
2-15
STUDY OBJECTIVES 1. EXPLAIN THE CHARACTERISTICS AND PURPOSES OF COST ACCOUNTING. 2. DESCRIBE THE FLOW OF COSTS IN A JOB ORDER COST ACCOUNTING SYSTEM. 3. EXPLAIN THE NATURE AND IMPORTANCE OF A JOB COST SHEET. 4. INDICATE HOW THE PREDETERMINED OVERHEAD RATE IS DETERMINED AND USED. 5. PREPARE ENTRIES FOR JOBS COMPLETED AND SOLD. 6. DISTINGUISH BETWEEN UNDER- AND OVERAPPLIED MANUFACTURING OVERHEAD.
2-4
CHAPTER REVIEW Cost Accounting Systems
1.
(S.O. 1) Cost accounting involves the measuring, recording, and reporting of product costs. From the data accumulated, both the total cost and unit cost of each product is determined.
2.
A cost accounting system consists of accounts for the various manufacturing costs. These accounts are fully integrated into the general ledger of a company. An important feature of a cost accounting system is the use of a perpetual inventory system. Such a system provides information immediately on the cost of a product. The two basic types of cost accounting systems are (a) a job order cost system and (b) a process cost system.
3.
Under a job order cost system, costs are assigned to each job or to each batch of goods.
4.
A process cost system is used when a large volume of similar products are manufactured. Process costing accumulates product-related costs for a period of time instead of assigning costs to specific products or job orders.
Job Order Cost Flow
5.
(S.O. 2) The flow of costs in job order cost accounting parallels the physical flow of the materials as they are converted into finished goods. There are two major steps in the flow of costs: (a) accumulating the manufacturing costs incurred and (b) assigning the accumulated costs to the work done.
6.
No effort is made when costs are incurred to associate the costs with specific jobs.
7.
The assignment of manufacturing costs involves entries to Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold.
8.
The costs of raw materials purchased are debited to Raw Materials Inventory when materials are received.
9.
Factory labor costs are debited to Factory Labor when they are incurred. The cost of factor
labor consists of (1) gross earnings of factory workers, (2) employer payroll taxes on the earnings, and (3) fringe benefits incurred by the employer. Factory Labor is not a control account. 10.
Manufacturing overhead costs are recognized daily as incurred and periodically through adjusting entries. The costs are debited to Manufacturing Overhead.
Assigning Manufacturing Costs to Work in Process
11.
(S.O. 3) The assignment of manufacturing overhead costs to work in process involves debits to Work in Process Inventory and credits to Raw Materials Inventory, Factory Labor, and Manufacturing Overhead.
2-5
Job Cost Sheet
12.
A job cost sheet is a form used to record the costs chargeable to a specific job and to determine the total and unit cost of the completed job. A separate job cost sheet is kept for each job. A subsidiary ledger consists of individual records for each individual item. The Work in Process account is referred to as a control account because it summarizes the detailed data regarding specific jobs contained in the job cost sheets. Each entry to Work in Process Inventory must be accompanied by a corresponding posting to one or more job cost sheets. Each entry to Work in Process Inventory must be accompanied by a corresponding posting to one or more job cost sheets.
13.
Raw materials costs are assigned when the materials are issued by the storeroom. Work in Process Inventory is debited for direct materials used, Manufacturing Overhead is debited for indirect materials used, and Raw Materials Inventory is credited.
14.
Factory labor costs are assigned to jobs on the basis of time tickets prepared when the work is performed. Work in Process Inventory is debited for direct labor costs, Manufacturing Overhead is debited for indirect labor costs, and Factory Labor is credited.
Manufacturing Overhead Costs
15.
(S.O. 4) Manufacturing overhead relates to production operations as a whole and therefore cannot be assigned to specific jobs on the basis of actual costs incurred. Instead, manufacturing overhead is assigned to work in process and to specific jobs on an estimated basis through the use of a predetermined overhead rate.
16.
The predetermined overhead rate is based on the relationship between estimated annual overhead costs and expected annual operating activity. This relationship is expressed in terms of a common activity base such as direct labor costs, direct labor hours, or machine hours. a. The formula for the predetermined overhead rate is: Estimated Expected Annual ÷ Annual Operating Overhead Costs Activity b. c.
17.
=
Predetermined Overhead Rate
The use of a predetermined overhead rate enables the company to determine the approximate total cost of each job when the job is completed. In recent years, there has been a trend toward use of machine hours as the activity base due to increased reliance on automation in manufacturing operations.
At the end of each month, the balance in Work in Process Inventory should equal the sum of the costs shown on the job cost sheets for unfinished jobs.
Assigning Costs to Finished Goods
18.
(S.O. 5) When a job is completed, the total cost is debited to Finished Goods Inventory and credited to Work in Process Inventory. Finished Goods Inventory is a control account that controls individual finished goods records in a finished goods subsidiary ledger.
19.
Cost of goods sold is recognized when the sale occurs by a debit to Cost of Goods Sold and a
credit to Finished Goods Inventory (along with a debit to Accounts Receivable or Cash and a credit to Sales).
2-6
20.
At the end of a period, financial statements are prepared that present aggregate data on all jobs manufactured and sold. a. The cost of goods manufactured schedule has one new feature: in determining total manufacturing costs, manufacturing overhead applied is used instead of actual overhead costs. b. The cost of goods manufactured schedule is prepared directly from the Work in Process Inventory account.
Under- or Overapplied Manufacturing Overhead
21.
(S.O. 6) Manufacturing overhead may be under- or overapplied. When Manufacturing Overhead has a debit balance, overhead is said to be underapplied. Underapplied overhead means that the overhead assigned to work in process is less than the overhead incurred. When manufacturing overhead has a credit balance, overhead is overapplied. Overapplied overhead means that the overhead assigned to work in process is greater than the overhead incurred.
22.
At the end of the year, any balance in Manufacturing Overhead is eliminated through an adjusting entry, usually to Cost of Goods Sold. a. Underapplied overhead is debited to Cost of Goods Sold. b. Overapplied overhead is credited to Cost of Goods Sold.
2-7
LECTURE OUTLINE A.
Cost Accounting Systems.
1. Cost accounting involves the measuring, recording, and reporting of product costs. From the data accumulated, companies determine both the total cost and the unit cost of each product. 2. A cost accounting system consists of accounts for the various manufacturing costs. These accounts are fully integrated into the general ledger of a company. An important feature of a cost accounting system is the use of a perpetual inventory system that provides immediate, up-to-date information on the cost of a product. 3. There are two basic types of cost accounting systems:
TEACHING TIP
ILLUSTRATION 2-1 identifies the two basic types of cost accounting systems
and their characteristics.
B.
a.
A job order system, where the company assigns costs to each job or to each batch of goods, and
b.
A process cost system, used when a company manufactures a large volume of similar products.
Job Order Cost Flow.
1. The flow of costs (direct materials, direct labor, and manufacturing overhead) in job order cost accounting parallels the physical flow of the materials as they are converted into finished goods.
2-8
TEACHING TIP
ILLUSTRATION 2-2 provides an overview of the cost flows through the general
ledger accounts in a job order cost system. Emphasize the two steps of (1) accumulating manufacturing costs incurred, and then (2) assigning accumulated costs to products. 2. There are two major steps in the flow of costs: a.
Accumulating the manufacturing costs incurred; these costs are accumulated in three accounts: Raw Materials Inventory, Factory Labor, and Manufacturing Overhead, and
b.
Assigning the accumulated costs to Work in Process Inventory and eventually to Finished Goods Inventory and Cost of Goods Sold.
3. Three entries are made to accumulate the manufacturing costs incurred.
TEACHING TIP
ILLUSTRATION 2-3 provides an example of the journal entries required to
accumulate the cost of raw materials, factory labor, and actual manufacturing overhead. a.
When the company receives the raw materials it has purchased, it debits the costs of the materials to Raw Materials Inventory. Raw Materials Inventory is a control account. The subsidiary ledger consists of individual records for each item of raw materials.
b.
The cost of factory labor consists of gross earnings of factory workers, employer payroll taxes, and fringe benefits (sick pay, pensions, and vacation pay) incurred by the employer. Companies debit labor costs to Factory Labor as they incur those costs. Factory labor is assigned to work in process and manufacturing overhead at the end of the period. 2-9
c.
C.
A company may record overhead costs periodically through adjusting entries by debiting Manufacturing Overhead. Manufacturing Overhead is a control account and the subsidiary ledger consists of individual accounts for each type of cost (factory utilities, factory repairs, etc.).
Assigning Manufacturing Costs to Work in Process.
1. A job cost sheet is a form used to record the costs chargeable to a specific job and to determine the total and unit costs of the completed job. The job cost sheets constitute the subsidiary ledger for the Work in Process Inventory account. 2. Each entry to Work in Process Inventory must be accompanied by a corresponding posting to one or more job cost sheets. 3. Three entries are made in assigning the manufacturing costs to work in process.
TEACHING TIP
ILLUSTRATION 2-4 provides an example of the journal entries required to assign
direct materials, direct labor, and manufacturing overhead to Work in Process Inventory. Emphasize that actual overhead costs are not assigned but rather overhead is applied using a predetermined overhead rate. a.
Materials requisition slips indicate the quantity and type of materials withdrawn and the account to be charged. Companies charge direct materials to Work in Process Inventory and indirect materials to Manufacturing Overhead.
b.
Companies assign factory labor costs to jobs on the basis of time tickets prepared when the work is performed. The time ticket indicates the hours worked, the account and job to be charged, and the total labor cost. Companies debit the Work in Process Inventory account for direct labor, and Manufacturing Overhead for indirect labor. 2-10
c.
Companies assign manufacturing overhead to work in process and to specific jobs on an estimated basis through the use of a predetermined overhead rate. Using a predetermined overhead rate enables a cost to be determined for a job immediately.
4. The predetermined overhead rate is based on the relationship between estimated annual overhead costs and expected annual operating activity, expressed in terms of a common activity base.
TEACHING TIP
Use ILLUSTRATION 2-4 again to discuss how a predetermined overhead rate is calculated. Emphasize the importance of choosing an appropriate activity as a base for assigning overhead. a.
The activity may be stated in terms of direct labor costs, direct labor hours, machine hours, or any other measure that will provide an equitable basis for applying overhead costs to jobs.
b.
The predetermined overhead rate is established at the beginning of the year.
5. Using a predetermined overhead rate enables the company to determine the approximate total cost of each job when the job is completed.
D.
Assigning Costs to Finished Goods and Cost of Goods Sold.
1. When a job is completed, the company summarizes the costs in the applicable job cost sheet and debits Finished Goods Inventory. Finished Goods Inventory is a control account that controls individual finished goods records in a finished goods subsidiary ledger. Postings to the finished goods records are made directly from completed job cost sheets.
2-11
2. Companies recognize cost of goods sold when each sale occurs. Each sale requires an entry debiting Cash or Accounts Receivable and crediting Sales for the selling price and a second entry debiting Cost of Goods Sold and crediting Finished Goods Inventory for the cost of the goods.
TEACHING TIP
ILLUSTRATION 2-5 provides an example of the journal entries required to assign
manufacturing costs to finished goods and to record a sale and the cost of completed units sold. E.
Job Order Cost Flows and Reporting Job Cost Data.
1. A job order cost accounting system may be illustrated in a flow chart.
TEACHING TIP
ILLUSTRATION 2-6 provides a flow chart of the cost flows through the general
ledger accounts for the examples used in Illustrations 2-3, 2-4, and 2-5. 2. Entries in the job cost system also provide a summary of the inventory control accounts and source documents for assigning costs to jobs.
TEACHING TIP
ILLUSTRATION 2-7 identifies the major source documents used to make entries in
a job order cost system. 3. The cost of goods manufactured schedule is the same as for companies that do not use job order costing with one exception: manufacturing overhead applied, rather than actual overhead costs, is added to direct materials and direct labor to determine total manufacturing costs.
2-12